An Opportunity to Reassess the Effects of NAFTA on Mexico

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SEATTLE — In his third campaign for president, Andrés Manuel López Obrador seems certain to finally capture Mexico’s top job. After decades of meager economic growth and rampant corruption at the highest levels, many Mexicans see López Obrador as the most viable option for real change and prosperity. From regaining a sense of economic self-sufficiency for rural farmers to addressing the purported negative effects of NAFTA on Mexico, López Obrador’s concerns have played well with the poor, the working class and well-educated youths alike.

Rather than reinventing himself to the times, López Obrador has benefited from a wave of anti-system and anti-government sentiment. His possible election to the presidency reflects the evolution of the country rather than a monumental shift in his ideology. In this sense, “the country has changed more than him,” as polling firm head Francisco Abundis told U.S. News.

While a win is far from certain, if he decides to keep his promises on revamping the Mexican economy, López Obrador’s victory will provide him with a platform to implement new ideas on alleviating poverty, inequality and corruption in Mexico.

A victory for the populist former mayor of Mexico City would also reignite the debate surrounding renegotiations of the North American Free Trade Agreement (NAFTA). López Obrador’s campaign rhetoric has prioritized creating opportunities and protections in the domestic economy. One of the centerpieces of this policy is addressing the efficacy of the trilateral trade deal and its usefulness to poor Mexicans, an important group of constituents supporting López Obrador.

NAFTA and Mexican Farming

Commonly referred to as NAFTA, the trade agreement between Canada, Mexico and the U.S. has been repeatedly assailed by the Trump administration. The front-runner in the Mexican elections, although less vociferous in his denouncements of the deal, is also skeptical of its benefits to small farmers. If López Obrador becomes president, this protectionist mood could spread south of the border.

Although a total repeal would be devastating to the export industry—on a value basis, more than 73 percent of Mexico’s total exports in 2016 went to the U.S.—there would likely be mixed reactions throughout Mexico. The poorest states might prefer a return to a pre-NAFTA era. Since it went into effect on January 1, 1994, rural peasant farmers, especially corn growers in the poverty-stricken southern states, have seen firsthand the effects of NAFTA on Mexico.

At the onset of NAFTA, while tariffs on agricultural goods were removed, subsidies were left in place. The highly subsidized U.S.-grown corn, with higher average productivity levels, quickly outstripped the capacity of small Mexican farmers. Rural farmers with small plots of land were devastated by the U.S. competition in corn. As of last year, Mexican imports of corn totaled 14.7 million tons, making Mexico the largest market for U.S. corn exports.

Agricultural employment in Mexico was also affected. Between 1991 and 2007, there was a 19 percent drop, equivalent to roughly two million jobs, in the agricultural sector. Much of this decline has come from family labor and other workers not paid in cash.

Poverty and Emigration

Inextricably connected to the effects of NAFTA on Mexico is the flow of migrants to the U.S. looking for work and the prospect of extreme poverty due to the elimination of peasant farmers’ livelihoods. Official numbers put poverty levels in the Mexican countryside at 61 percent. One of the motivating factors in the surge in emigration of recent years is undoubtedly the prospect of better opportunities up north.

Reflecting this trend was the prevalence of increasingly poor households in the rural farmland of Mexico immediately after NAFTA came into effect. From 1994 to 2000—the first six years of NAFTA—there was an annual increase of migrants to the U.S. of 79 percent.

Regional Inequality One of the Effects of NAFTA on Mexico

Perhaps more important for López Obrador, should he win, is dealing with the divide in prosperity between the northern and southern Mexican states. Again, NAFTA has played a prominent role in determining the outcomes of both the states closest to the U.S. border and those farthest south.

While the regions closest to the U.S.-Mexican border have generally prospered since NAFTA’s inception, communities farther south have suffered. According to official statistics, 80 percent of those living in Chiapas—a poor southern state bordering Guatemala—remain entrenched in poverty. Conversely, in Nuevo León, which borders Texas and is Mexico’s most affluent state, 60 percent of the population is considered middle class.

An Opportunity

Even with the impact on small production farmers in Mexico, proponents of the trade deal still claim the benefits outweigh the costs. Backing their pro-trade gusto is evidence of the beneficial effects of NAFTA on Mexico, such as helping to lift millions of Mexicans into better-paying factory jobs over the last two decades, thus offsetting the decrease in lower-paying farm work.

Regardless of one’s stance on the trade deal, the Mexican election creates a unique opportunity to reassess the benefits and costs of NAFTA on a regional basis. Finding the best approach for Mexico’s next president will likely be a balancing act between embracing more trade liberalization and further modernization of the economy and protecting more impoverished southern states from the highly efficient competition of their northern neighbor.

– Nathan Ghelli

Photo: Flickr

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About Author

Nathan Ghelli

Nathan writes for The Borgen Project from Salt Lake City, UT. Nathan completed my master’s in economics at the University of Utah. His thesis focused on the possible trade flow repercussions in the European Union of the 2014 Russian food embargo. International trade, US foreign policy, and the geopolitics of the Eurasia region are of particular interest to him.

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